For most Australians, buying a home involves raising a deposit then borrowing a substantial amount of money from a bank or other lending institution which then holds a mortgage on the property. The amount borrowed is influenced by a number of factors including the price of the property, the amount of deposit, the policy of lenders regarding borrowing limits, and the ability of the borrower to repay the loan (which in turn is influenced by household income and housing loan interest rates).

During the period between 1994-95 and 2006-07 the number of dwellings financed grew considerably. In 2006-07, banks and other lending institutions financed 777,000 dwellings for owner occupation, 43,000 more than in the previous year. While the number of established dwellings financed each year has grown from 348,000 in 1994-95 to 681,000 in 2006-07, the number of new dwellings financed for construction or purchase has declined from 103,000 to 89,000 over the same period (graph 10.14). In 2006-07, new dwellings represented 12% of all dwellings financed in Australia. Western Australia had the highest proportion of new dwellings financed (14%) and New South Wales had the lowest (8%).

10.14 Dwellings financed(a)

Established house prices increased from 2002-03 to 2003-04, then levelled off until 2005-06, when they again increased, in line with the rise in established home purchases (graph 10.15). Between 2002-03 and 2006-07 project home prices increased by an average of 22%, while established house prices increased by an average of 33%.

Average loan sizes increased along broadly similar lines to house prices between 1994-95 and 2006-07. For most of the period, the average loan size of first home buyers was slightly less than for non-first, or changeover, buyers (graph 10.16). However, in 2004-05, first home buyers' average borrowings exceeded that of changeover buyers and in 2006-07 this gap widened, with first home buyers' borrowing an average of $230,000, more than $5,000 above the average loan size of changeover buyers.

10.16 Average loan size

Differences in average loan sizes between states and territories tended to reflect differences in median house prices (table 10.17). Average loan sizes in 2006-07 were highest in New South Wales ($248,000) and the Australian Capital Territory ($234,000), and were lowest in Tasmania ($167,000).

Between 1995-96 and 2005-06, the average real disposable income of households who were lone persons under 35 years increased by 29%. That of couple-only households with a reference person under 35 years increased by 25%, and that of couples with dependent children increased by 42% (graph 10.18). In the same period, the average loan size, after adjustment for inflation, increased by 75%.

More than 1.1 million Australian households bought a home in the three years prior to the 2005-06 Survey of Income and Housing, which was conducted during the 12 months ended June 2006. Almost 30% were first home buyers, most of whom were young households with a reference person aged under 35 years (68%) (table 10.19). Less than 11% of recent first home buyer households had a reference person aged 45 years and over. In contrast, more than half (56%) of recent changeover buyer households had a reference person aged 45 years and over.

Changeover buyers are able to use the equity in their previous dwelling as an often substantial deposit on a more expensive 'upgrade'. Many will be able to discharge their mortgage quickly and some may not need to borrow at all. In 2005-06, the estimated median value of dwellings for recent changeover buyers was $360,000 compared with $290,000 for recent first home buyers. While changeover buyers had larger mortgages than first home buyers, the proportion of owners with a mortgage was lower (64% compared with 95%).

Consequently, average weekly housing costs of changeover buyers were lower than for first home buyers - $296 compared with $398. Changeover buyers also spent a smaller proportion of household income on housing than first home buyers - 19% compared with 26%.